Oil Prices Ease As Refinery Maintenance Season Draws Near

Crude oil prices eased in early trading today, with WTI at US$65.43 a barrel in morning trade in Europe, after yesterday hitting US$66.66 a barrel, the highest since December 2014, as refinery maintenance season approaches across the northern hemisphere. Brent crude, which yesterday reached an intraday high of US$71.28, was down to US$69.85 in morning trade in Europe before both recouped some losses thanks to a continued weakness in the U.S. dollar.

The start of maintenance season across refineries means that demand will decline, and we’re likely to start seeing weekly builds in U.S. crude oil inventories. Yet the size of these inventories cannot be predicted yet, especially with the long string of draws during the winter, when demand for fuel is usually lower, as evidenced by the string of gasoline builds in EIA’s reports.

Reuters quoted Jefferies as saying maintenance season in the United States will be “fairly heavy” and there were also maintenance activities scheduled at Middle Eastern refineries. All this will reduce demand for crude oil in a palpable way, but oil prices were today affected by the stronger greenback as well.

Yesterday Treasury Secretary Steven Mnuchin said he favored a weaker U.S. dollar, becoming probably the first senior politician to speak so openly on the issue. As the Wall Street Journal recalls, previous administrations have been wary of expressing such a sentiment, as it might have an unwanted effect on interest rates and cross-border trade. Related: Why Oil Prices Could Dive

Yet later the same day, President Trump told CNBC in Davos that Mnuchin’s words were taken out of context, adding that "The dollar is going to get stronger and stronger, and ultimately I want to see a strong dollar. Our country is becoming so economically strong again and strong in other ways, too."

The rebound in the greenback pressured oil prices additionally, though only for a while, since the commodity and the currency have an inverse relationship. But there is also the much bigger issue of production: last week, crude oil production in the U.S. hit 9.878 million bpd. The 10-million-bpd mark is widely expected to be hit soon—and if it coincides with the start of refinery maintenance season, the price slump might be significant.

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Shale should be looking to export more during maintenance season. No one wants the junky dumbbell crude blends that are made with it that provide no distillates. Refiners are still going to be working hard on filling those distillate stocks, shame shale wells can't help with that at all.